Many countries are transitioning from command economies to social economies. There are many factors that led to this transition, and one of those factors is the debt crisis. This can be understood well with CIMA online study.
Let’s consider China and Vietnam. These countries are said to have the same concepts of transition economies with Vietnam following China’s footsteps. Vietnam is currently transitioning to a social economy from a command economy. Central planning economy has been in effect for over three decades now. Even though it transitions, the Communist party is still ruling in this Asian country.
The state enterprises in Vietnam are the role players in its emerging debt crisis. These enterprises have also led China to debt crisis and hit-hard on the banking system. In an attempt to solve its debt crisis caused by state-owned enterprises, Vietnam launched asset management companies this year. The same applied to China in the year 1999 where it had launched asset management companies in an attempt to solve its debt crisis.
The flow of stock from state enterprises of these countries contributes significantly to their bad debts. China has made efforts in the 90’s to reduce its state-owned enterprises in order to manage its debts. It had reduced a significantly large number of its enterprises from millions to less than half a million in a period of 10 years. However, these thousands are still regarded as a large number of enterprises that are state-owned. Nevertheless, the main focus of China was on preventing the debt crisis that it faces because of state-owned enterprises. It has achieved that through privatization of some big state-owned corporations and financial institutions.
In an effort to follow the footsteps of China, Vietnam also considered to restructure its enterprises in order to prevent the bad debts. However, it is still a progress that grows in a slow pace. Its constant transition of the economy was likened to China. They both strive to shift from a command economy most of their debts stem from state-owned firms.
Vietnam is also a large country as China is. It has a population of more than 100 million people and is ranked 13th among the largest countries in the world. In transitioning economies, China and Vietnam follow the model used by the Soviet Union in the 90’s when it shifted from a command economy. They, Vietnam and China, allow private enterprises to also operate largely while the transition is done slowly with state-owned enterprises.
China and Vietnam avoid a rapid transformation of their economies because they have seen the negative consequences that were suffered by other European countries including Russia. They have suffered from the recession, which took place about a decade to be solved. This recession was a result of rapid transition of their economies. Now these Asian countries are taking it slowly.